Letters: Takeover fight recalls TV icons

Newport Beach, Mark M. Tomaino: As a kid growing up in the 1960s, two of my favorite television shows were “Star Trek” and “Dragnet.” One taught me to suspend disbelief, and the other kept me grounded in reality. Together, these shows nourished a healthy desire to engage in discovery without being impractical.

The brawl between Allergan and Valeant seems to have evolved from a quest for shareholder value creation into a battle involving two seemingly irreconcilable values, idealism and pragmatism. Whereas Allergan has demonstrated an idealistic focus on internal research and development as its primary engine of future growth, Valeant has chosen, pragmatically, to buy R&D successes without investing in its failures.

In response to Valeant’s bid, Allergan has fired its photon torpedoes in the form of a public-relations campaign designed to sully the reputation of a company that has delivered its shareholders price appreciation over the past five years of 977 percent, compared with Allergan’s performance of 371 percent. Any dispassionate, Spock-like observer of both companies, possessing a keen awareness of the complementary nature of their product lines, and a Joe Friday-focus on the fact that a combination would create the second-largest player in the eyecare market and a market leader in aesthetics and dermatology, would conclude that this deal makes perfect strategic sense.

Rather than communicate a plan to reconsider the prudence of its R&D initiatives, Allergan’s response to Valeant’s bid has smacked of smugness. Joe Friday would have been applauded for demanding evidence that Allergan’s R&D investments were accretive to shareholder value. Mr. Spock, catering to his human side, would have thanked Valeant, as Allergan’s shareholders will be better off after this battle is over, either way.

Allergan has raised its version of the USS Enterprise’s deflector shields by adopting a poison pill and criticizing Valeant for its pragmatic belief that acquiring existing products with debt and selling into large markets that benefit from durable underlying demand drivers is a more efficient source of long-term value creation than R&D investments that have demonstrated lower odds of success than winning a hand of blackjack in Vegas.

This contest does not require a choice between attractive and unattractive future shareholder returns, but, rather, attractive and more attractive shareholder returns. Sgt. Friday would have informed Allergan’s shareholders of their right to receive 2.6 times more share price appreciation, which is what Valeant has delivered to its shareholders over the past five years, as compared with Allergan.

Allergan contends that Valeant’s business model is not sustainable, that it will run out of things to acquire and be left with no R&D engine to power the firm. Mr. Spock would have raised an eyebrow, knowing that the mission of the Starship Enterprise was to seek out new life and new civilizations. Similarly, great management teams pivot in anticipation of changes in the environment and market. When and if the available supply of new products to be acquired diminishes, Valeant will be left with a large addressable market, broad suite of products that drive revenue growth, and the opportunity to create value from operating leverage derived from its sales and marketing infrastructure.

The cash to be reaped by Valeant will be used to pay down debt, creating equity value for its shareholders. Such a strategy is no less risky than Allergan’s disproportionally high reliance on R&D. If Mr. Spock were to have performed a Vulcan mind meld on Allergan’s CEO, it would have likely revealed Allergan’s intent to acquire more companies to offset this risk.

Emotions can derail good investment decisions. Anyone who immediately rebuffs Valeant’s most recent offer without first practicing a Friday-like focus on the facts would invite a Spock-like response: “That is illogical.” Who would have known that television in the 1960s would come in so handy?

double standard on protecting kids

Fullerton, Robert Filacchione: Let me get something straight. Debra Harrell was arrested, and her her 9-year-old daughter was put into state protective services because she let the child go to a nearby park unaccompanied [“Overzealous state can violate family rights,” Opinion, July 23]. Our federal government is paying for the care and transportation of unaccompanied illegal children and “reuniting” them with their parents or other family members within the United States. What is wrong with this picture? We throw our citizens in jail for allowing a child to go down the block to the park, but reward families that allow their children to be put at risk by crossing our border unaccompanied? We are a sick nation.

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